1. Field of the Invention
This invention relates to computer systems and methods used to process data pertaining to financial assets, such as loans, securities, and so on and, in particular, to pricing loans provided to a secondary mortgage market participant.
2. Description of Related Art
The purchase of a home is typically the largest investment that a person makes. Because of the amount of money required to purchase a home, most home buyers do not have sufficient assets to purchase a home outright on a cash basis. In addition, buyers who have already purchased a home may wish to refinance their home. Therefore, potential homebuyers consult lenders such as banks, credit unions, mortgage companies, savings and loan institutions, state and local housing finance agencies, and so on, to obtain the funds necessary to purchase or refinance their homes. These lenders offer mortgage products to potential home buyers. The lenders offer mortgage products to potential home buyers. The lenders who make (originate and fund) mortgage loans directly to home buyers comprise the “primary mortgage market.”
When a mortgage is made in the primary mortgage market, the lender can: (i) hold the loan as an investment in its portfolio, or (ii) sell the loan to investors in the “secondary mortgage market” (e.g., pension funds, insurance companies, securities dealers, financial institutions and various other investors) to replenish its supply of funds. The loan may be sold alone, or in packages of other similar loans, for cash or in exchange for mortgage backed securities (MBS) which provide lenders with a liquid asset to hold or sell to the secondary market. By choosing to sell its mortgage loans to the secondary mortgage market for cash, or by selling the mortgage backed securities, lenders get a new supply of funds to make more home mortgage loans, thereby assuring home buyers a continual supply of mortgage credit.
Loans sold for either cash or in exchange for MBS may be priced based on a base or standard loan product. Typically, such a base product price does not take into consideration specific loan and borrower characteristics for a particular loan sold to a secondary mortgage market purchaser. As a result, the secondary mortgage market purchaser may not provide a price for a loan based on the specific characteristics of the loan sold by the lender. Rather, loans are grouped together in broad categories representing, for example, “good credit” or “not good credit.” This situation can have the unintended effect that some borrowers are over-penalized for credit blemishes. That is, a borrower that is marginally situated between these two categories may not receive a good credit rating, and therefore may only be able to obtain a loan from a lender or substantially less favorable terms than a borrower with good credit. Additionally, other deal related parameters that my favor some borrowers (e.g., a loan that is for a primary residence rather than for investment property) do not get taken into account. Lenders typically are unable to offer such borrowers loans or better terms because the secondary mortgage market is unable to accurately price such loans, and therefore the price offered to lenders for such loans is less favorable. Therefore, a need exists for a system and method that is able to more accurately price loans in the secondary mortgage market.